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Games: From Kyoto to Cooperation
Peter Cramton and Steven Stoft, September 7, 2010
This paper reviews the literature on the
non-cooperative equilibria of the international cap-and-trade game. Because such
games can actually increase total emissions and typical polarize abatement
commitments, they are unsuitable instruments for climate policy.
the same setting where the international cap-and-trade game increases total
emissions, a game to select a single global emission target induces optimal
abatement. However, the use of a global quantity target is ruled out because it
cannot be agreeably allocated among countries. A global price target results
in a similarly cooperative outcome to a global quantity target, and there is
agreement that national carbon prices should equal the global target.
agreement on a suitably high price target requires linking Green-Fund payments
to the level of that target. This induces rich and poor countries to favor
the same, nearly-optimal price. The full Green-Fund game is a three-stage
repeated game. The first stage determines the Green-Fund linkage parameter.
The second stage uses that parameter to influence the “votes” for the global
the third stage countries implement the price target in the context of a
global market for “price credits.” A treaty is needed to implement voting
rules and market rules for price credits, but it should not directly set the
Green-Fund payment level or the global price target.